Cycle Trading: Stocks Deliver Bearish Follow Through

Stocks printed a bearish reversal on Tuesday.  On Wednesday stocks formed a swing high which signaled the daily cycle decline.  Thursday bearish follow through indicates something more sinister than a daily cycle decline is afoot.

Thursday was day 29 for the daily equity cycle. Stocks broke below the 50 day MA to close below the lower daily cycle band which indicates an end to the daily uptrend.  It also signals that the intermediate cycle is now in decline.  While a peak on day 27 usually results in a right translated cycle formation, stocks closing below the lower daily cycle band calls that in to question. Which means breaking below the previous daily cycle low of 2405.70 is certainly a possibility.  If that were to happen that would confirm that stocks are in an intermediate cycle decline.

The weekly chart shows that stocks are still in a weekly uptrend that is characterized by weekly highs above the upper weekly cycle band and lows forming above the lower weekly cycle band.  At 39 weeks stocks are very deep in their timing band to begin an intermediate cycle decline.  So while the close below the lower daily cycle band signals that stocks are beginning their intermediate decline, a weekly swing high is required.  Since stocks printed a new high this week, the earliest a weekly swing high can form will be next week.  But even if stocks form a weekly swing high next week stocks will remain in their weekly uptrend unless they close below the lower weekly cycle band.